Education - Q3FY12 Results Preview - Growth momentum intact - Centrum

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Q3FY12 Results Preview

Education

Growth momentum intact

We expect the companies to register strong growth during Q3FY12 on the back of seasonality . We believe the growth in topline would be largely driven by multimedia solutions to private schools, vocational courses and IT training segments. We expect Educomp Solutions to register strong growth in sales in Q3 driven by the school segment. NIIT is expected to report a decline in topline as it sold the Element K business. Within the space, we like NIIT considering attarctive valuation and better prospects of improving its margin profile in FY13E.

m  Topline growth to continue: We expect the growth momentum to continue for companies given the opportunity in the space and also because Q3 is seasonally a better quarter. Segments including multimedia solutions to private schools and vocational business would be key drivers.   

m  Operating margin to improve: Better topline would result in improvement in margin during Q3. NIIT would witness better margin on a like to like basis, though the individual learning segment is in the process of integration. We believe that NIIT would see margin expansion in FY13E on the back of better sales mix in favour of individual learning solutions and school learning solutions.

m  Prefer NIIT in the space: We prefer NIIT in the space considering attractive valuations and prospects of margin expansion in FY13E. Our belief is that NIIT re-rating is contingent upon FY12E financial performance i.e growth with margin expansion. Hence, NIIT becomes a long-term bet. Also, we believe that stock price of Educomp factors in all the concerns including FCCB payout, high capex in formal education and free cash flow generation.  Some of the triggers for the stock would be: 1) monetization of subsidiary(s) and 2) further announcement of securitization deal with 20% recourse.